The Babe Ruth Effect in Venture Capital and Trend Following

Consider from The Babe Ruth Effect: Frequency vs Magnitude (PDF):

“Building a portfolio that can deliver superior performance requires that you evaluate each investment using expected value analysis. What is striking is that the leading thinkers across varied fields — including horse betting, casino gambling, and investing — all emphasize the same point. We call it the Babe Ruth effect: even though Ruth struck out a lot, he was one of baseball’s greatest hitters.”

Chris Dixon adds:

…about ~6% of investments representing 4.5% of dollars invested generated ~60% of the total returns. Let’s dig into the data a little more to see what separates good VC funds from bad VC funds.

Further from Dixon:

The home runs for good funds are around 20x, but the home runs for great funds are almost 70x. As Bill Gurley says: “Venture capital is not even a home run business. It’s a grand slam business.”

Speculation is not about a consistent 1% a month. That’s fantasy.

More TF resources.

The Babe Ruth Effect
The Babe Ruth Effect

Ep 582: Peter Borish Interview with Michael Covel on Trend Following Radio

Peter Borish
Peter Borish

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Peter Borish is chief strategist of Quad Capital. He works as a trading coach and helps recruit new traders and develop the company’s trading strategy. He also is a founding member of the Robin Hood Foundation. The Robin Hood Foundation has made great strides in their charity work and are continuing to do bigger and better things. Peter believes that the quality of life for those around you is much more important than the material possessions that can be accumulated.

Michael and Peter change gears from charity work, to trading and Quad Capital. Quad Capital has had only 5 or 6 down months since inception about 42 months ago. What does their multi-strategy approach consist of? They look at alpha generating, capacity constrained strategies. They also believe investors are looking at liquidity, therefore that is exactly what they provide in their funds.

Peter is the business of managing risk, not just being right. Another way of putting it is, “Are you interested in making money or are you interested in being right?” We should all be in the business of making money, over being right. That being said, is Quad Capital open to other strategies that could make them money? As long as the strategy fits within their trading philosophy, then they are always open to new talent. Michael and Peter finish the conversation talking sports analogies. A lot of traders think they are Michael Jordon, but are they Michael Jordon on the Bulls? Or are they Michael Jordon on the White Sox?

In this episode of Trend Following Radio:

  • Politics
  • Robin Hood Foundation
  • Risk management
  • Discretionary trading
  • Having objectivity in your trading
  • Kelly criteria
  • Own up to your mistakes

“Everyone trades too large relative to their perceived edge.” – Peter Borish

Mentions & Resources:

Want a FREE Trend Following Video? Get it here.

“I’m curious for some behind-the-scenes details…”

Feedback in:

Hi Michael,

I enjoy your podcasts, I’ve been a regular listener for the past 2-3 years. You put a lot of care into each episode, and it shows. I’m curious for some behind-the-scenes details in your preparation. Do you write a podcast script? If so, how detailed is it (paragraphs, bullets, etc)? It doesn’t sound like you’re reading from a card or just winging it. How do you strike that balance?

Regards,
[Name]

I have 1 page of notes for an interview. But these days I feel like I use less and less. Monologues? In past I might have had a page of notes, but these days I ponder the issue, turn recorder on and go. It’s technically winging it, but when you do it for so long it’s not really winging it.

Interesting question!

Trading Food for Thought: August 19th Edition

Food for thought:

Enjoy.

Ep. 581: Collin Seow Interview with Michael Covel on Trend Following Radio

Collin Seow
Collin Seow

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Collin Seow is author of “The Systematic Trader: How I turned a $250,000 debt into profits through stock trading.” He also is a qualified Chartered Portfolio Manager with a Certified Financial Technician qualification, and a member of MENSA Singapore and Technical Analysts Society Singapore.

Michael and Collin switch discuss the “Singaporean perspective.” What is the Singaporean perspective and what helped lay the foundation for their success? The founding fathers of Singapore set forth strict rules and regulations so people knew what they could and could not do. The system was laid out clear and concise. Citizens knew what their boundaries were down to the last detail. For example, there are rules defined ranging from whether or not you can chew gum to how far trees are allowed to be planted apart from one another.

Collin moves from the Singaporean perspective socially, to their perspective on trading. More traders in Asia seem to be open to the idea of systematic trading. When he back tests a system, he doesn’t just look at making money, he tries to figure out how to filter out the losses. He wants to protect what he has so the returns will take care of themselves. Picking a certain percent that you’re willing to risk on a trade is not necessarily intuitive. Collin also looks at both position trading and swing trading, and adjusts his risk according to trading style. Although there are many different styles, and factors that play into how one will trade, Collin still attributes over 50% of trading success to having the right psychology.

In this episode of Trend Following Radio:

  • Different types of momentum trading
  • Singaporean perspective
  • Risk management
  • Position trading vs. swing trading
  • A sense of entitlement in today’s society

“At the end of the day it isn’t about having the right strategy, it’s about having the right mindset.” – Collin Seow

“If you don’t have an edge, how the hell are you suppose to play the game?” – Michael Covel

Mentions & Resources:

Want a FREE Trend Following Video? Get it here.

“Covel, you’ve done it again!”

Feedback in:

Covel, you’ve done it again!

The Sunstein interview should be wrapped up and sent to the podcast Hall of Fame. I have a copy of Nudge sitting on my shelf and will read it soon, before reading the latest book from Sunstein. Have you read any of Nomi Prins’ work? She writes about the relationship between central banks, bankers, wall street, and politicians. She would be a great interview. Just a suggestion.

Keep up your extraordinary work!! Love the mega episodes, too.

Best,
[Name]
Berkeley, CA

Why did you like Cass one so much?

I studied the sociology of ideology at UC Berkeley and I’m fascinated by the approach neuroscientists take regarding how we arrive at political opinions, issues of morality, partisan divide, etc. Sunstein’s approach enables me to use relevant, empirical terms so I can explain my position/opinion on matters without losing sight of someone else’s. It keeps conversations civil, and fosters stimulating debate and diversity of opinion in these divided times. Kahneman is also a good teacher in this regard, and so is Jonathan Haidt, who wrote “The Righteous Mind,” (one of the best social science books of the past decade).

I live in Berkeley, a hotbed of not only “radicalism”, but liberal elitism: folks who read the NYT & Krugman and keep their radio dial tuned to NPR for their daily dose of confirmation bias. Its disheartening when educated folks are so bloated with political correctness that they simply cannot understand different perspectives on how the world works. Sunstein, et al, assist me in coping with this in my daily life.

Thanks!

“I will send you some screwdrivers… when I receive the book.”

Feedback in:

Dear Mr. Covel,

I purchased your book and am about 170 pages into it. I am a manufacturer of hand tools in the USA. I would like to comment not on the text but the book, the binding, and the paper covering the front and back. They are all falling a part. Florida is humid, but I also collect books and this book is just a mess. The cardboard of the cover is to soft for the weight of the book. The blue paper peeled off the card board. Your text is fascinating but your book is a mess to read or to take on a trip. I can send photos if you want them.

I do have one question. As you describe each of the investors, I understand what they are doing but how do you get them to manage small amount of money like $100,000 to $200,000? I will finish the book over the next few months. I do most of my reading while trying to get elite status on United AirLines.

Where did you buy it from? Must be some odd random thing. I am currently in SE Asia (hotter than Tallahassee, Florida where I went to school) and super hot/rainy. No issues. I have 50+ books with me and they are fine. Where can I send you another?

PS. There are TF ETFs and mutual funds. Solves the issue.